The Washington Supreme Court went out of its way to protect oppressed Washington homeowners, while creating greater uncertainty for foreclosure purchasers, in their recent decision Albice v. Dickinson (Cause No. 85260-0). A homeowner had borrowed $115,500 with a loan secured by her home, which was appraised in 2007 at $950,000. The homeowner fell behind in payments, and a Trustee’s Sale was set for September 8, 2006. Before the sale date, the homeowner and lender entered into a Forbearance Agreement, and the Trustee continued the sale date every time a payment under the Forbearance Agreement was made.
Meanwhile, the homeowner made all required payments under the Forbearance Agreement, however each of the payments was late. The lender never objected to the late payment, until the last required payment, which was sent February 2, 2007. The lender returned that payment to the homeowner on February 10, 2007, with a message that it was rejected because it was late. Even though the Forbearance Agreement provided for a 10 day notice before default, no notice was given, and the house was auctioned at a Trustee’s Sale February 16, 2007, exactly 161 days after the original Trustee’s Sale date. (RCW 61.24.040(6) only allows continuances of sale dates for up to 120 days.) Mr. Dickinson was one of only two bidders to show up for the sale after the many sale continuances, and was the winning bidder with a bid of $130,000.
The Washington Deed of Trust Act, RCW 61.24, has three goals: (1) to provide a means of efficient and inexpensive foreclosures, (2) to allow interested parties adequate opportunities to prevent wrongful foreclosures, and (3) to promote stability of land titles. To promote the stability of land titles, RCW 61.24 requires that anyone wishing to prevent a non-judicial foreclosure needs to obtain a temporary injunction before the sale date. RCW 61.24.040(1)(f)(IX). In the Albice case, the homeowner did not seek to enjoin the sale, but brought an action quieting title after the sale in response to an action by Mr. Dickinson, the purchaser at the trustee’s sale, to evict the homeowner from her residence. The Court discussed whether the homeowner waived her right to overturn the sale by failing to enjoin the sale once she learned that her final payment was rejected as late.
In analyzing whether the homeowner waived her right, the Court noted that RCW 61.24.040(i)(f)(IX) states that “[f]ailure to bring . . . a lawsuit may result in waiver of any proper grounds for invalidating the Trustee’s sale” (emphasis added). A prior Washington decision held that failure to seek a temporary injunction, and instead merely asking for a permanent injunction, waived the right to invalidate the sale. Plein v. Lackey, 149 Wn. 2d 214, 227, 67 P.3d 1061 (2003). However the Court majority could not bear the injustice suffered by the homeowner in this case and stated: “[W]e apply waiver only where it is equitable under the circumstances and where it serves the goals of the act.” The Court determined that equity could not allow the statutory waiver to be applied because the homeowner had no knowledge of the irregularity of the sale in time to restrain the sale, complained of the sale irregularities within a short period of time after the sale, and lost a huge amount of equity in her home.
However, as the concurring opinion of Justice Stephens points out, the homeowner knew six days before the sale that her payment was rejected. At that point, with her knowledge of the continuations of the Trustee’s Sale, and the lender’s failure to give the ten day notice of default as required under the Forbearance Agreement, quick action could have resulted in a lawsuit before the sale. That would have require fast action and level of legal sophistication this homeowner may not have possessed. Justice Stephens argued that longstanding law already provides that the sale could have been overturned because of the combination of the extremely low sale price in relation to the value of the property, and the unfair circumstances provide equitable grounds for invalidating the sale.
However the result of the ruling is that if you’re buying at a foreclosure sale, you will now be less certain that after you pay your funds, you’ll become the owner of the property without challenge. The statutory bar for overturning a sale after it takes place has been lowered. In effect, the Court rules that a violation of statutory timelines by a trustee is a procedural irregularity that invalidates a foreclosure sale, in many cases regardless of whether the pre-sale remedy of enjoining the sale required by RCW 61.24.040(i)(f)(IX) is followed. This seriously undermines the important goal of providing for the stability of land titles.
The Court majority could not abide the unfair taking of the house, and perhaps got carried away with its sense of protecting the downtrodden. Given the number of homeowners facing foreclosure during these difficult times, it’s hard not to sympathize.